Out of court settlement during ongoing Insolvency Process?

In Vivek Bansal Vs Burda Druck India Pvt. Ltd. & Anr., in a recent judgment the National Company Law Appellate Tribunal (NCLAT) held that a company could exit an ongoing insolvency process even as an interim resolution professional had been appointed and a moratorium imposed under the Insolvency and Bankruptcy Code (IBC) by the adjudicating authority, that is the National Company Law Tribunal (NCLT) triggering the debate over the best option for banks and other creditors to recover their dues-a resolution monitored by the court, or an out-of-court settlement with lenders.

In the judgment, a bench headed by acting chairperson Justice Bansi Lal Bhat noted that since the operational creditor (who had taken the company to NCLT) and the corporate debtor had “amicably settled the dispute”, it allowed the parties to exit the CIRP.

The tribunal decided that as the parties have reached the settlement and the ‘Committee of Creditors’ was not constituted, in exercise of powers conferred under Rule 11 of the NCLAT Rules, 2016, the impugned order dated 27th May, 2020 passed in ‘C.P. No. IB 2223 (ND)/2019’ was set aside and allowed exit from the ‘corporate insolvency resolution process’ which is permissible in terms of the verdict of the Hon’ble Apex Court in ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.’ – (2019) 4 SCC 17). The matter is accordingly disposed of in terms of the ‘Settlement Agreement’ between the parties.

The latest move by the NCLAT paves the way for companies to settle claims and end ongoing insolvency cases. The ‘corporate debtors’ in such cases can thus arrive at a settlement with the lenders, even after initiation of the corporate insolvency resolution process (CIRP) under the IBC.